Egypt to get $1.25bn further IMF aid

CAIRO, July 14, 2017

The Executive Board of the International Monetary Fund (IMF) has approved the first review of Egypt’s economic reform programme supported by an arrangement under the Extended Fund Facility (EFF).

The completion of the review allows the authorities to draw the equivalent of SDR895.48 million (about $1.25 billion), bringing total disbursements to SDR 2,865.53 million about $4 billion.

The three-year EFF arrangement in the amount equivalent to SDR8.597 billion (about $12 billion at the time of approval, or 422 percent of quota) was approved by the Executive Board on November 11, 2016 to support the authorities’ economic reform program.

The authorities’ reform programme supported by the EFF will help Egypt restore macroeconomic stability and promote inclusive growth. Policies supported by the programme aim to correct external imbalances and restore competitiveness, reduce the budget deficit and place public debt on a declining path, boost growth and create jobs while protecting vulnerable groups.

Christine Lagarde, IMF managing director, said: “I would like to congratulate the people of Egypt and the authorities for their success in pursuing their ambitious economic reform programme. The approval by the IMF Executive Board of the First Review of the programme shows the IMF’s strong support for Egypt in these efforts. We believe that these efforts will yield results. The government and the central bank have taken the right measures to rein in inflation, reduce the budget deficit, and set the Egyptian economy on a path to stability and growth. I am very pleased that the government has taken and will continue to take measures to protect the poor and vulnerable groups, including through increasing social spending. "

In completing the review, the Executive Board approved the authorities’ request for waivers of the June performance criteria for the primary fiscal balance and the fuel subsidy bill. These were missed due to higher costs of imported food and fuel products caused by large depreciation of the pound. The waiver was approved in view of the important measures taken in June to contain fuel subsidies and the planned stronger fiscal adjustment in the next two years, which will keep the program objectives on track, the IMF said.

Following the Executive Board discussion on Egypt, David Lipton, first deputy managing director and acting chair, said: "Egypt’s reform programme is off to a good start. The transition to a flexible exchange rate went smoothly. The parallel market has virtually disappeared and central bank reserves have increased significantly. The energy subsidy reform, wage restraint, and the new VAT have all contributed to reducing the fiscal deficit and helped free up space for social spending to support the poor. Market confidence is returning and capital flows are increasing. These augur well for future growth.

"The authorities’ immediate priority is to reduce inflation, which poses a risk to macroeconomic stability and hurts the poor. The Central Bank of Egypt has taken significant steps to reduce inflation by raising policy interest rates and absorbing excess liquidity. It has also developed a monetary framework with a clearly defined policy anchor and is stepping up its communication with markets and with the public to manage inflation expectations. The CBE has also committed to maintain the flexible exchange rate, which is critical to cushion shocks, preserve competitiveness, and accumulate reserves," he said.

The continued fiscal consolidation aims to place public debt on a declining path. Consistent with this objective, the 2017/18 budget targets a primary surplus for the first time in a decade. The main deficit-reducing measures are the increase of the VAT rate, continued reforms of energy subsidies and wage restraint. At the same time, the budget includes a strong social component to ease the burden of adjustment on the poor and the vulnerable, the IMF said.

Significant progress has been made on structural reforms. An industrial licensing law and a new investment law have been passed, and a new insolvency law is in the parliament. These are critical pieces of legislation necessary to strengthen the business climate, attract investments, and promote growth. The government’s reform agenda is now directed at improving public finance management, promoting competition, encouraging female participation in the labor force, and strengthening the financial sector. These reforms will further improve the business environment and support private sector development, it said.

"Macroeconomic stability is still fragile and the reform agenda is difficult, but the authorities have demonstrated a strong resolve to contain the risks. A flexible exchange rate regime, a strong monetary policy framework, and a commitment to a continued fiscal adjustment will help rebuild policy buffers. Strong ownership of the program will support implementation of the reform agenda," the IMF said.

Christine Lagarde, IMF managing director, said: “I would like to congratulate the people of Egypt and the authorities for their success in pursuing their ambitious economic reform programme. The approval by the IMF Executive Board of the First Review of the programme shows the IMF’s strong support for Egypt in these efforts. We believe that these efforts will yield results. The government and the central bank have taken the right measures to rein in inflation, reduce the budget deficit, and set the Egyptian economy on a path to stability and growth. I am very pleased that the government has taken and will continue to take measures to protect the poor and vulnerable groups, including through increasing social spending. - TradeArabia News Service